Tax Analysts Blog

Happy Earth Day! Despite the Talk, Politicians Fail the Planet

Posted on Apr 22, 2009

There are two humongous problems with the Democrats’ approach to global warming. First, their support for conservation is halfhearted. Second, they can't resist picking winners and losers (in other words, their policies are not “technology neutral”).

What’s wrong with subsidies for green technologies and green jobs? Well, for one thing, they artificially keep the cost of alternative energy low. For example, they hope to keep the cost of solar-generated electricity costs at about the same level as coal-generated electricity. As usual, they seek the gain-with-no-pain option. But there is pain: It comes in the form of higher taxes or government debt to pay for the subsidies. And subsidies stifle one of the most natural and efficient responses to reducing carbon emissions: using less electricity.

Subsidies also target particular technologies. Everybody in Washington has their own favorite technology. But when you favor one technology, you are hurting the others. You don’t have to be a right-winger to understand that it would be far superior to put a price on carbon emissions and let the markets and scientists figure it out.

Meanwhile, the Republicans wax and wane in their acknowledgement that global warming is a serious issue. If they believe there is no problem, they should say so and follow up accordingly by arguing against all anti-global-warming policies. But you don't hear too much of that. They simply can't afford to alienate huge swaths of voters who don't agree. If they can't deny the global warming problem, then they should be advocating solutions that are the most economically efficient, that is, policies that can reduce carbon emissions to an efficient level at the lowest cost. A good place for Republicans to look for guidance is from former Bush top economist Greg Mankiw.

Believe it or not, there is a silver bullet for our carbon problem: A carbon tax. It is tech neutral. It encourages conservation. And all the money can be given back to taxpayers with offsetting tax cuts.

And here’s the icing on the cake for Republicans: With a carbon tax, all subsidies and all government regulations (like CAFE standards) that restrict carbon emissions can be repealed. It is as close as you can get to a free-market solution when dealing with this problem. Still, most Republicans abhor a carbon tax simply because it is a tax. Their inability to distinguish between bad taxes (that is, most every tax out there) and good taxes (those on pollution) is the fatal flaw of their environmental policies.

Democrats need to practice a little restraint. They should put all their energy into designing a cap-and-trade system that approximates a carbon tax (even though a carbon tax would be better). But just stop there. Don’t subsidize alternatives. Don’t add redundant regulations. Be as tough as you want on carbon emitters, but have at least a little faith in the market.

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